ECB published a consultation, which was launched by the working group on euro risk-free rates, on recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA), as a result of the proposed transition from EONIA to the euro short-term rate (€STR). Responses to this consultation should be sent by June 12, 2019.
The consultation describes the different legal options discussed by the working group over the last few months to ensure a smooth transition from EONIA to €STR. Market participants are invited to give feedback on the recommended legal actions to ensure a market-wide smooth transition from EONIA to €STR. The consultation on the EONIA to €STR Legal Action Plan is structured into four sections—
- Recommended EONIA fallback rate that should be used on cessation of EONIA in new and legacy contracts, wherever possible and appropriate
- Continued use of EONIA in new contracts
- Legacy contracts maturing before December 2021, which is the EONIA discontinuation date
- Legacy contracts maturing after December 2021
The working group recommends that market participants consider replacing EONIA with €STR as a reference rate for all products and contracts and that they make all operational adjustments necessary for using €STR as their standard benchmark as soon as possible. It is recommended that new contracts referencing EONIA include robust fallback provisions and an acknowledgement that references to EONIA will be understood to be references to EONIA as modified after the change to its methodology on October 02, 2019. For legacy contracts referencing EONIA and maturing after December 2021, market participants should consider replacing EONIA as a primary rate as soon as possible or embedding robust fallback clauses referencing the recommended fallback rate for EONIA. Additionally, the working group intends to recommend €STR plus a spread (the one-off computation of the difference between €STR and EONIA in the context of the proposed recalibrated EONIA methodology) as the EONIA fallback rate.
The EONIA to €STR Legal Action Plan covers legacy and new contracts referencing EONIA in different asset classes (derivative transactions, collateral agreements, and cash products) and was developed by the working group in close cooperation with the relevant trade associations and a group of law firms that are members of the subgroup on contractual robustness. This consultation follows the publication of a set of general guiding principles for fallback provisions in new contracts for euro-denominated cash products and the recommendations on the transition path from EONIA to €STR, which the working group issued in January and March 2019, respectively. ECB will evaluate all the responses and prepare a summary of the feedback received. This summary will be discussed by the working group and published on the ECB website, along with the other documents related to the meeting of the working group on July 04, 2019.
Comment Due Date: June 12, 2019
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Legal Action Plan, Risk-Free Rates, Interest Rate Benchmarks, Fallback Provisions, ECB
Previous ArticleSam Woods of PRA Speaks About Style of Regulation in UK After Brexit
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).